David Ltd commences operations on 1 July 2020 On the same date, it purchases a machine at a cost of $1000 000 The machine is expected to have a useful life of 4 years, with benefits being uniform throughout its life. It will have no residual value at the end of 4 years Hence, for accounting purposes the depreciation expense would be $250 000 per year For taxation purposes, the ATO allows the company to depreciate the asset over three years—that is, $200 000 per year The profit before tax of the company for each of the next four years (years ending 30 June) is $600 000, $700 000, $800 000 and $900 000 respectively The tax rate is 30 per cent. Required: 1. Calculate the taxable profit on 30 June 2021, 30 June 2022, 30 June 2023. 2. Record the necessary journal entries.
David Ltd commences operations on 1 July 2020 On the same date, it purchases a machine at a cost of $1000 000 The machine is expected to have a useful life of 4 years, with benefits being uniform throughout its life. It will have no residual value at the end of 4 years Hence, for accounting purposes the depreciation expense would be $250 000 per year For taxation purposes, the ATO allows the company to depreciate the asset over three years—that is, $200 000 per year The profit before tax of the company for each of the next four years (years ending 30 June) is $600 000, $700 000, $800 000 and $900 000 respectively The tax rate is 30 per cent. Required: 1. Calculate the taxable profit on 30 June 2021, 30 June 2022, 30 June 2023. 2. Record the necessary journal entries.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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David Ltd commences operations on 1 July 2020
On the same date, it purchases a machine at a cost of $1000 000
The machine is expected to have a useful life of 4 years, with benefits being uniform throughout its life. It will have no residual value at the end of 4 years
Hence, for accounting purposes the depreciation expense would be $250 000 per year
For taxation purposes, the ATO allows the company to depreciate the asset over three years—that is, $200 000 per year
The profit before tax of the company for each of the next four years (years ending 30 June) is $600 000, $700 000, $800 000 and $900 000 respectively
The tax rate is 30 per cent.
Required:
1. Calculate the taxable profit on 30 June 2021, 30 June 2022, 30 June 2023.
2. Record the necessary
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